Date of Award

5-2018

Document Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Economics

Committee Member

Dr. William R. Dougan, Committee Chair

Committee Member

Dr. Howard Bodenhorn

Committee Member

Dr. Robert K. Fleck

Committee Member

Dr. Chungsang Lam

Abstract

This dissertation exams topics on the human capital and the distribution of income. The first chapter investigates the insurance value of progressive taxation with heterogeneous risk aversion. The Investment in human capital is lower when the returns to it are subject to unin-surable risk. Progressive income taxation offers a degree of insurance against such risk. Offsetting this effect are the two well-known distortions imposed by progressive taxation: lower expected net-of-tax returns to human-capital acquisition and distortion of the labor-supply decision. The net efficiency effect of progressive income taxation is therefore ambiguous, but there is a presumption that some degree of progressivity can be welfare-improving for risk-averse individuals. To derive the degree of progressivity that may be desirable on efficiency grounds, I construct a general-equilibrium model of an economy with two sectors, calibrated to approximate the U.S. labor market, that differ in terms of the productivity of human capital and the variability of lifetime earnings. Individuals, who differ only in terms of their risk aversion, sort themselves into the two sectors. The simple version of this model, which ignores the labor-leisure choice, suggests that a relatively high degree of income-tax progressivity maximizes aggregate welfare as measured by workers willingness to pay for the insurance being provided. When each workers supply of labor is allowed to vary in response to marginal tax rates, the efficient degree of progressivity is similar to that of the U.S. tax code. The second chapter exams the worker quality and education premium in the United States. The education premium in the U.S. has been increasing since the 1980s, but the rate of increase has slowed. One explanation for the slowdown is the decrease in the quality of workers who attended some college relative to the quality of workers who obtained a high school diploma. This paper develops a measure of worker quality to estimate the impact of college and high school graduates quality on wages and the education premium. The measure of worker quality uses a weighted average of an occupational skill index. I link occupational skill to the measurement of quality because the variance of college wages is increasing over time and is directly related to occupational choice. I find that a 1 percent increase in the quality of both high school and college graduates results in a 0.36 percent increase in the education premium, which is an economically meaningful change. One reason for the decline in the quality of college graduates comes from the increasing college enrollment over time. I find that a 1 percent increase in college enrollment leads to a decline in the quality of college graduates by 0.11 percent, and has nearly no effect on the quality of high school graduates. The third chapter explores the top-coded earnings. The wage and salary earnings, when above some particular value, are censored in the ACS, March CPS and Decennial Census. Others have addressed this issue of top-coding and also used non-public data to develop various alternative multipliers. We improve on this research, which focuses on producing multipliers for the whole pop-ulation, by developing multipliers that are demographic and regional specific. It is not unreasonable to expect that the earnings distribution varies across racial, gender, and education dimensions, and, even, across geographies. Comparison of the results from our methodology will be made to those proposed by others, with special focus on investigating differences in the education premium over time.

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